CapitaLand Commercial Trust - CIMB Research 2015-12-09: Proactive leasing activities

CapitaLand Commercial Trust - CIMB Research 2015-12-09: Proactive leasing activities CAPITALAND COMMERCIAL TRUST C61U.SI 

CapitaLand Commercial Trust - Proactive leasing activities 

  • CCT saw higher income from most of its properties in 9M15. 
  • Rental reversion remained positive in 9M15, with new lease demand from the financial services, IT, media, telco and real estate sectors. 
  • Adopting proactive leasing strategy ahead of rising incoming supply; CapitaGreen’s committed occupancy rate stood at 87.7% at end-Sep. 
  • Among the lowest-geared S-REITS; Potential S$1.3bn debt headroom for purchases. 
  • Muted office sentiment likely priced in. Reiterate Add, with an unchanged DDM-based target price. 

Higher rental income from most of its properties in 9M15 

  • For 9M15, CCT booked a 3.8% yoy increase in NPI due mainly to revenue growth from higher rents and occupancy rates across all its assets (with the exception of Twenty Anson). 
  • CCT’s portfolio achieved 96.4% occupancy rate in 9M15 versus CBD Core’s 95.8%. Its Grade A offices achieved 94.7% occupancy in 9M15, in line with the market’s 94.8%. 

Reversions remain positive in 3Q15 

  • In 3Q15, CCT registered 226,000 sq ft of new and renewed space, of which 36% were new leases. 
  • Demand came largely from the financial services, IT, media and telcos and real estate sectors. 
  • Transacted rents ranged from S$9.30-12.30 psf/month for One George St, S$10.50-13.50 psf/month for 6 Battery Rd and S$11.90-14.00 psf/month for CapitaGreen. 
  • Overall, average portfolio rent inched up to S$8.89 psf/month. 
  • CapitaGreen, which opened on 9 Sep, achieved 87.7% committed occupancy rate. 

Proactive leasing strategy 

  • CCT has proactively re-contracted expiring leases, including those due in FY16. To date, 2% of its office and retail leases are due to be renewed in FY15 and another 16% in FY16. This provides the trust with good earnings visibility. 
  • Average expiring rents in FY16 and FY17 range from S$9.69-10.26 psf/month. We expect the gap between market and reversion rents to narrow, as market rents continue to slide over the next two years due to above-average new supply. 

Healthy balance sheet with low gearing 

  • CCT has one of the lowest leverage ratios among the S-REITs, with net gearing of 30.1% at end-Sep. This gives it huge debt headroom of c.S$1.3bn (before hitting the 40% net gearing ratio) for future acquisitions. 
  • It has a call option to acquire the remaining 60% of CapitaGreen from its JV partners, within three years after completion in 2015. This option could provide an avenue for inorganic growth. 

Muted office sentiment priced in 

  • CCT currently trades at 0.74x FY15 P/BV and offers investors potential FY16 DPU yield of 7.1%. 
  • We think that much of the muted sentiment in the office sector has been priced in. 
  • We maintain our Add call, with an unchanged DDM-based target price of S$1.65.

LOCK Mun Yee CIMB Securities | 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.65 Same 1.65